In a much anticipated move, the IRS recently issued a set of
important proposals aimed at helping employers identify their
full-time employees for purposes the Affordable Care Act's
"employer shared responsibility" rules. These are
the 2014 rules that require employers with 50 or more full-time
equivalent employees to offer health coverage or pay money to the
government. Penalties, or "assessable payments" in
the parlance of the law, are based on the number of
"full-time" employees. So it's important for
employers to know who these folks are. At the same time, the
IRS expanded on a separate but related feature of the Act that
imposes a 90-day limit on waiting periods in group health
The centerpiece of the IRS's approach to defining the term
"full-time employee" is a "look-back/stability
period" safe harbor under which employers are permitted to
select up to a 12-month look-back (or "measurement")
period for both ongoing and newly hired employees to determine
whether an employee is full-time during the measurement
period. If so, the employer must make an offer of coverage
during a corresponding "stability period" or face the
prospect of a fine.
While the treatment of ongoing employees is not new, the
expansion to new hires is. Specifically, new rules are
provided for a sub-set of new hires called "variable hour
employees." A new "variable hour employee" is
defined generally to mean "an individual who, based on the
facts and circumstances on the individual's start date, the
employer cannot reasonably determine will work full-time (i.e.,
average of at least 30 hours per week) . . .." The rules
for determining the full-time status of new variable hour employees
are similar in many respects to those that apply to tax-qualified
retirement plans. New hire are first tested based on their
service during their initial year of employment; they then
transition to testing based on plan year service, with special
rules that deal with the overlap.
This recently issued guidance is important, to be sure.
And, while it is generally favorable to employers, it is not the
last word on the subject. There are other aspects of the
employer shared responsibility rules for which guidance has either
not been issued (e.g., how the rules apply to multiemployer plans),
or, if issued, is either incomplete (e.g., what constitutes
essential health benefits) or the subject of contention (e.g.,
whether affordability is based on self-only coverage or, in
appropriate instances, family coverage).
For a copy of the look-back/stability period safe harbor
guidance, along with separate guidance explaining how the look-back
rules coordinate with the 90-day waiting period provisions of the
law, click here and here.
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